Posted by
Klaus Spanderen-2 on
Aug 30, 2008; 10:16am
URL: http://quantlib.414.s1.nabble.com/AnaliticHestonEngine-SV-or-SVJ-tp6640p6647.html
Hi
> I just wanted to clarify one point you're making below. If I'm to use
> both puts and calls, and assuming that the implied vols are different for
> the two types, how should I select whether to use the implied vol from a
> put or a call for a given strike, maturity pair for calibration.
A step forward for the calibration on american options using the european
Heston engine is to "quote" the volatilities in terms of strike and "average
time 'til' exercise" instead of the maturity of the options. This should
bring call and out vols closer together. But even if you use a finite
difference engine to calibrate the Heston model on american options (I've
tried it) you find examples where the put and call prices are
not "consistent", e.g. due to the repo rate for short selling.
> I'm
> thinking if I use both the put and the call for a given strike and
> maturity, it will be a rather weird type vol surface (with spikes) and it
> might confuse the calibration program ?
hmm.. in practice the Heston calibration is a good averaging algorithm to get
ride of the spikes;-). But remove options that have obviously wrong prices.
cheers
Klaus
--
Klaus Spanderen
Ludwig Erhard Str. 12
48734 Reken (Germany)
EMail:
[hidden email] (remove NOSPAM from the address)
-------------------------------------------------------------------------
This SF.Net email is sponsored by the Moblin Your Move Developer's challenge
Build the coolest Linux based applications with Moblin SDK & win great prizes
Grand prize is a trip for two to an Open Source event anywhere in the world
http://moblin-contest.org/redirect.php?banner_id=100&url=/_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users